Ladies and gentlemen, thank you for standing by, and welcome to the SSAB Q1 Presentation 2020. (Operator Instructions) I also must advise you that this conference is being recorded today.

And I would now like to hand the conference over to your first speaker today, Per Hillström. Thank you. Please go ahead, sir.

Thank you, and welcome to this presentation of the first quarter from SSAB. With us today, we have Martin Lindqvist, our President and CEO; and also Håkan Folin, our CFO. And we are in different locations here today, so I hope this will work.

If I can ask for the next slide with the agenda, Martin, our CEO, will start here by looking over Q1 and the outlook as well. Then Håkan will come back with the financials. And then Martin comes back again with the summary. And at the end, we have a Q&A.

So with that, I would ask you to put forward to Slide #4 here, recovery in Q1. And by that, I will ask you, Martin, please start your presentation.

Thank you, Per, and good morning. If we look at Q1, we saw a sequentially improved demand. And if we saw destocking end of Q4, we saw some restocking beginning of Q1. We saw higher shipments and higher production. We also saw improved capacity utilization. And in Q4, we were standing still with our planned yearly maintenance stops, and we had no maintenance stops in Q1. And during the quarter, we had stable production performance.

What we also saw was continued pressure on steel margins and especially in standard products, and we saw the usual seasonal working capital buildup in Q1.

Next slide, please. If we look at operating profit by division, most of the divisions were at more or less breakeven on EBIT levels, with the exception of Special Steels, where we saw an EBIT margin of 10%. And as you know, when we have tougher times, I mean, the difference is as big as it gets. I think Special Steels kept up fairly well in Q1. Americas, slightly positive. Ruukki Construction, positive, which is good for the first quarter and, I would say, is the best first quarter since we bought Rautaruukki back in 2014. SSAB Europe was breakeven. And Tibnor, slightly positive.

The next slide, please. If we look at the impact of COVID-19 on SSAB operations, and I will come back to actions we take due to the ongoing crisis. But we saw — we have seen stable operation and production so far. We saw in the end of March and beginning of April a somewhat higher sick leave, but that has been — we have been able to manage that in a decent way. We have taken a lot of actions to safeguard the health and safety of our personnel. We are, to a large extent, trying to work from home. We have travel restrictions. No external visitors at the sites or at the offices. We are restrictive when it comes to face-to-face meetings, and we have contingency plans for critical operations, which are — we have redundancies. So if we would have a spread of COVID-19, we will still be able to run production. And we have focused a lot on securing the supply chain with suppliers and critical material. And we haven’t seen any major disruptions due to that in Q1.

Next slide, please. This is a picture showing the volatility in our industry, and these are Nordic apparent steel demand growth year-over-year. And if anything, in this industry, even though COVID-19 is something completely new and maybe hard to relate to, but we are used to volatility and big swings in apparent steel demand. If you take — you see the growth for 2008 and 2009, we are typically quite quick to introduce actions and do things when we see that the market shifts. Having said that, of course, this COVID-19 is nothing like we have seen before. So the outlook is, for Q2 and onwards, quite uncertain.

Next slide, please. If we look at the main customer segments, and you recognize this picture, we see in most of the segments a fairly weak demand. Heavy Transport and Automotive, they are temporarily closed, even though some of them are starting up production. Construction Machinery, we also see lower production levels than we saw before. The only 2 areas where we see some kind of healthy demand is Material Handling and so forth also in Construction. But apart from that, looking into Q2, we see lower volumes in many of the segments.

Next slide, please. And when we describe the outlook, we say that, once again, the outlook is more uncertain than normal, but we have some visibility into Q2. And we expect shipments for Americas and SSAB Europe to contract sharply. We also expect volumes to go down in Special Steels, but somewhat less compared to the volumes for standard steel.

When we look at prices into Q2 compared to Q1, they will be fairly flat for Europe, somewhat lower for Special Steels and then lower for Americas. So this will not be mainly a price issue. This will be about volumes. And we expect volumes in Europe and Americas to contract, as I said, and go down as well in Special Steels.

Next slide, please. If we then look at the actions we have taken so far in SSAB, and we are typically planning for different scenarios. These are the actions we have taken so far. We have further actions that is ready to be implemented if and when needed. But if we start with Special Steels, we have moved the annual planned maintenance outage into the summer from Q4, have introduced short-term work allowances. We are postponing capacity expansion projects. And overall, very, very cost cautious, reduced the number of temporary employees, contractors, consultants and so on.

In Europe, we have done the same. And on top of that, we have, since mid-April or since a week, 1.5 week ago, idled 1 of 2 blast furnaces. We are reducing the rolling production, the shift forms and also standing still a week, a month. So we are reducing the rolling production with more than 25% short-term work and also moved the planned maintenance outages from end of Q3, Q4 into the summer.

In Americas, we have moved the planned maintenance outage in Montpelier into the second half of June and first half of July. And it will be less extensive than we planned for. We have also idled production at least 1 week or will idle production at least 1 week in Mobile and 1 week in May — April, May and June. And we will also have reduced production in Montpelier. And in Americas, as you know, we have a relative high share of variable costs, so we are more flexible in that aspect.

And overall, we have reduced external services, postponed projects. We have reduced salary for the executive committee and higher managers. We have hiring freeze and looked over investments. So, so far, we have implemented savings with an annual effect of more than SEK 1 billion. And we have reduced the investment level for the full year of this year to somewhere between SEK 2 billion and SEK 2.5 billion and earlier communicated was SEK 3 billion.

We also came out of March with liquid assets and committed credit lines to above SEK 22 billion. So we have worked also with the financial preparedness or readiness. And as I said, we have planned for different scenarios and have further actions to be implemented on a very short notice if and when needed.

Next slide, please. This is a picture we showed when we acquired Rautaruukki or Ruukki. And this picture shows the flexibility we have in the hot-end system, the part of the system that is typically the least flexible. And we were in Q1 standing still with one of the blast furnaces in Oxelösund. And as of April, we are standing still with one of the blast furnaces in Raahe. And if it would get even worse, we have another step to close the big blast furnace in Oxelösund and start a small one. So we are currently adjusting capacity to the demand and the deliveries and the production volumes we see for Q2. And that would have been impossible or was impossible at — if you take 2008 and 2009, as an example, because then we were forced in SSAB and Ruukki stand-alone companies to run the blast furnaces.

Håkan, with that, I turn over to you on the financials.

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Håkan Folin, SSAB AB (publ) – Executive VP & CFO [4]

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Thank you, Martin, and good morning, everyone. And I will dive into some more details of the financials, including going through the EBIT bridges, cash flow, balance sheet with focus on the debt and the liquidity situation, some updates on raw material situation and also, as Martin shortly described, the changes we have done in the planned maintenance outage for the year.

Next slide, please. If we start then looking at Q1, we saw a recovery from low levels in Q4. We saw sales increases 11%. We saw shipments increase with as much as 21% from Q4 and also even increase 1 percentage point compared to Q1 last year.

EBITDA bounced back from a negative level up to 7% EBITDA margins in Q1, not at all at the level we were in Q1 ’19, where especially SSAB Americas, both in Q1 and Q2, had 23% EBITDA margin. And translating into the EBITDA per tonne delivered steel, it was SEK 700 roughly per tonne delivered steel.

Next slide, please. If we just look at how the result has developed and we start with looking at Q1 versus Q1. Q1 last year, we had an EBIT of close to SEK 1.7 billion and now then SEK 343 million. Very big change is the impact coming from lower prices with over SEK 2.2 billion. It’s mainly SSAB Americas. As I said, they had very strong profitability in Q1, Q2 last year, but also coming from SSAB Europe. But actually, from Special Steels, we see a much more stable price situation than for the other divisions.

Volume slightly increased, basically coming from Europe. Variable COGS, close to SEK 600 million, which is, to a large extent, raw material. Fixed cost, somewhat lower. Then on the FX side, we have a negative impact of SEK 150 million. Typically, when the krona is weaker, we get a positive impact. However, it depends on versus which currencies. And this time around, it has weakened more against dollar than euro, and we have a lot of raw material buy in dollars, therefore, we have a negative FX impact.

Underabsorption being positive from stable production, and then other positive, which is basically a lower amortization of surplus values from [Rautaruukki] acquisition. To put it in another way, one can put price under variable COGS, given this was mainly raw material together, and then you see that we have a margin squeeze of roughly SEK 1.7 billion from last year. We were able to compensate that somewhat with higher volumes, lower fixed cost and better production level, but only with roughly then SEK 300 million or so, but big margin squeeze compared to Q1 last year.

Next slide, please. If we instead compare Q1 with Q4, the picture is rather different. In Q4, we had a negative EBIT of SEK 1.1 billion, leading up now to the positive EBIT. The prices were down somewhat further. Spot prices were reduced during Q4, so on average, our realized prices were somewhat lower. Clear increase in volume. Europe was the main contributor, but also for Americas and Special Steels, we saw clearly better volumes in Q4 than Q1. Also better on the variable COGS, which was, to a large extent, related to maintenance outage in Q4. Fixed cost, roughly same level.

FX, negative here as well, somewhat different reason. Here, we had quite big sales in some of the Latin American currencies, where they had a very negative currency impact during the quarter, Brazil, Peru, Chile, Argentina, et cetera. And then underabsorption, positive with SEK 900 million. So we had a lot of maintenance outage in Q4. We also idled the Raahe blast furnace during Q4.

Other, being negative, is — and the biggest portion there is that we had an insurance compensation in Q4 last year. But we can say that we bounced back, and Q4 was a bit of an abnormal quarter with a lot of destocking and our maintenance outages, and then we bounced back a bit from that now in Q1.

Next slide, please. On the cash flow side, we had a slight negative operating cash flow, mainly due to the low result, and also, we had buildup of working capital. On the working capital side, I will say that was rather expected. And the normal season pattern, we had SEK 1.4 billion of buildup in this quarter. If we compare with Q1 last year, we had SEK 1.3 billion. So that’s typically what we have in Q1. And especially if we compare with Q4, then we had a release of as much as SEK 2.2 billion. So when we have had such a big release in Q4 with the ongoing destocking, it was quite expected that we will have a bounce back in Q1. But otherwise, we compare Q1 this year with Q1 last year, the difference is basically on the earnings side. Working capital, on the same level. Maintenance expenditure, roughly on the same level as well.

Next slide, please. If we then move from the cash flow side to the balance sheet and look at our debt situation, we have a net debt now of SEK 12.7 billion, net gearing of 20%. It was 16% a year ago. It was 19% at the end of ’19. The duration of our loan portfolio has decreased quite a bit to 5.2 years from 6.3. The main reason for that is that we have increased our commercial paper quite a lot. I’ll come back to that shortly. And commercial papers are usually from 1 to 3 or up to 6 months in maturity times. And when we have increased those, that has a spillover effect then on the average duration of the loan portfolio.

We have increased our liquidity assets and committed credit lines rather significantly during the quarter. They are now SEK 22 billion, which corresponds to 29% of our revenue. At the end of ’19, so 1 quarter ago, it was 13%, so it increases 16 percentage points, partly through this increase in commercial paper, but also through new loans and bilateral RCF agreements.

And we have other actions in place and options we are looking at in order to secure additional liquidity buffer if we think that’s the right thing to do. And the reason why we have done this is, of course, the current uncertainty in the overall market situation and also on the credit market. And we wanted to make sure that we moved as fast as we could and secure significant liquidity assets and credit lines.

So we have SEK 22 billion, as I said. And if we look on the graph on the right-hand side, you can see that we have SEK 10 billion maturing in the coming 3 years. Five of those are maturing in 2020, roughly 4 is commercial paper. So we’ll see if we prolong those or we pay them back. But we definitely have secured quite a lot of liquidity preparedness.

Okay. Next slide, please. We added this one to show you what are the cash needs of the business, and cash need we define here as capital expenditure, interest paid and also taxes paid. It excludes changes in working capital. And last year, the cash needs was around SEK 4.6 billion. This year, we expect it to be between SEK 3 billion and SEK 3.5 billion. As Martin said, we have postponed some of the CapEx projects, the expansion in Mobile and also the start of the Oxelösund conversion. It does not mean that we are changing the target of being able to produce fossil-free steel to the market in 2026. But basically, we are contracting the ramp-up period of this whole project. But the ambition is unchanged and still the same to be the first to the market with this.

We’re expecting interest paid to be rather stable this year as last year, and then we will have lower paid taxes in 2020. We had quite a big paid taxes in 2019 in the U.S. So overall, lower cash needs of the business in ’20 versus ’19.

Okay. Next slide, please. If we move on to the raw material side, purchase prices for both iron ore and coking coal have been fairly stable in the quarter. For iron ore, they were up 1 percentage point versus Q4. This means that, from a P&L perspective, where we say that, for iron ore, we have between 0.5 and 1 quarter lag, it will basically be the same impact in Q2 as in Q1, no change in the P&L. For coking coal, the average purchase prices continued slightly downwards. We saw the trend throughout 2019 and continued in Q1, down with 5%. So we’ll get somewhat lower coking coal cost in the P&L in Q2 versus Q1.

Next slide, please. If we move on to the U.S. then and look at the scrap prices. The scrap spot prices decreased during Q1. However, our purchase prices were actually up 22%, which sounds a bit unlogical then, but the reason is that the spot prices increased. They were increasing throughout Q4 2019, as you can see in the graph. So on average, that implied higher prices for us. What we have seen so far in Q2 is that spot prices have decreased rather sharply now given the weaker demand from the steel producers.

Okay. Next slide, please. And finally then from my side, a few words on the planned maintenance outages in 2020. We have changed the timing of this quite a bit for 2 reasons. One is that if we can do it in the third quarter instead of the fourth, we can lower the cost of this, given that we can reduce the number of summer temporaries that otherwise would be working with running the production. And also, we know that Q4, from a demand perspective, as Martin showed, is going to be clearly weaker than Q1. This might very well spill over in Q3 as well, where we have the summer period. And then, we obviously don’t know given the large uncertainty right now, but potentially then could see a better demand in Q4, and then we want to have done as much as the maintenance outages as possible.

Okay. Giving the word back to you then, Martin, to summarize it.

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Martin Lindqvist, SSAB AB (publ) – President, CEO & Director [5]

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Thank you, Håkan. And then if we move to Slide 23 and the strategic targets. Even though the uncertainty short term is a bit bigger than usual, we have not changed our ambitions for the targets for 2022 and feel confident that we will be able to meet the volume targets for Special Steels and the sales targets for SSAB Services, Premium share in Americas and Europe and also the market share in the Nordics. And we are keeping that pace, and over time or until 2022, we feel very confident that we will reach the strategic targets.

And if we go to next slide. Even though we are delaying some strategic projects or volume-expansion projects, we have not changed our ambition when it comes to becoming the first producer of fossil-free steel. And the pilot plant remains on track and will be ready this summer and start to ramp up this fall. And this is a picture where you see the massive building and the equipment around it, and that will start according to plan.

If we then go to next slide and the last summary slide. We saw in Q1 recoveries, as Håkan showed, from low levels in Q4. And Q2 outlook is very uncertain. But long term, we feel that we are on the right way. And we were quite quick to take actions given the outlook for Q2 and onwards. And we have taken several measures to reduce costs and increase cash flow and continue to strengthen the balance sheet. And we have difference scenarios plans and more actions to be introduced on very short notice if and when needed. We have decent balance sheet or a strong balance sheet and, as Håkan mentioned, liquid assets and committed credit lines exceeding SEK 22 billion, and a fairly limited cash need for the rest of the year.

So despite the great uncertainty looking short term forward, we continue to focus on developing the Special Steels business and the transition to fossil-free steel. And as you saw in Q1, the Special Steels business is typically over time keeping up with less volatility and better profitability compared to more standardized businesses.

So with that, Per, we are ready to take questions.

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Per Hillström, SSAB AB (publ) – Head of IR [6]

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Yes. Thank you, Martin and Håkan. And I know that some of you have had issues dialing in to ask questions, it’s been a long queue. The queue is shorter now, so you could try again. If you’re just listening through the webcast, you can also e-mail me your question, and we can take those as we go along here.

(Operator Instructions) Your first question comes from the line of Alain Gabriel.

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Alain Gabriel, Morgan Stanley, Research Division – Equity Analyst [2]

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Just one question from my side is on the Americas business. How do you see the outlook for that particular end of the market, given the weakness in your core markets there, especially in oil and gas and the Heavy Transport? And what are you doing to counter the negative impact of this market slump, so to speak?

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Martin Lindqvist, SSAB AB (publ) – President, CEO & Director [3]

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No, we expect, as we say in the report, lower volumes in Americas in Q2. And we have a more flexible system with electric arc furnaces and nonunionized plants where we, more or less, pay for prime yield or for volumes, so we have lower cost. But having said that — more flexible, more variable cost than fixed cost. But having said that, we have moved the Montpelier outage that was originally planned for Q4. We have moved that into second half of June, first half of July. And we have also planned to stand still a week in Mobile. So we are adjusting production to the demand we see in North America for the coming quarter or quarters.

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Alain Gabriel, Morgan Stanley, Research Division – Equity Analyst [4]

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And as a follow-up on that question, how does your fixed cost structure differ from the Americas to the rest of the business? If you can just give us a bit of numbers on what percentage of your costs are fixed in Americas versus the rest of the group.

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Martin Lindqvist, SSAB AB (publ) – President, CEO & Director [5]

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Håkan, do you take that?

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Håkan Folin, SSAB AB (publ) – Executive VP & CFO [6]

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One can say is that in terms of the salary payment for the Americas people, it’s much more flexible, given that they are paid on production bonuses. So it’s not — it doesn’t flex with production totally, but if we produce less, we also clearly pay out less to our own workers. And then we also have contractors on site, for example, managing our scrap yards, and they are also typically paid on how much scrap they are entering into our electric arc furnace during a certain time period. I don’t have exactly percentage on the top of my head, but it is clearly much more flexible than our Nordic operations.

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Martin Lindqvist, SSAB AB (publ) – President, CEO & Director [7]

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And what we typically do when times are a bit tougher, we reduce the number of contractors and use our own personnel. So we have flexibility in that way as well.

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Operator [8]

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And we’ll now take our next question, and this comes from the line of Seth Rosenfeld.

If I may, with regard to Special Steels, can you just give us a bit more color with what drives your confidence in the argument that Special Steels may outperform other businesses into Q2? To what extent is this just an element of volume relative to price stability? And if you can give us a bit of color on what you’ve seen in terms of order intake, order backlog in this business over the past couple of weeks?

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Martin Lindqvist, SSAB AB (publ) – President, CEO & Director [10]

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No. But — I mean we are — when it comes to quenched and tempered steel, we are the high-quality producer and the global market leader. And we saw in — I mean when — we only give a prognosis for Q2 where we see the order book and the order intake. And we saw in Q2 — or in Q1, we saw decent order intake with the exception of Asia and especially China. And then end of Q1, beginning of Q2, so far, we have seen that Asia has bounced back and China has bounced back. So when we look at the order book and the order intake, we expect less of a drop in Special Steels. And what we also see is the slightly lower prices, but margins being less affected as well. So I mean this is what we see now in the order book for Q2, but also what we typically see over, call it, different business cycles, that Special Steels keeps up slightly better than the more standardized business.

Just a follow-up. Can you give us a bit of color in terms of the geographical mix of Special Steels specifically in terms of your export exposure to Asia, given that’s going to be, I guess, the key boost into Q2?

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Martin Lindqvist, SSAB AB (publ) – President, CEO & Director [12]

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No. But we have a global business, and I mean we have a lot of volumes in Europe and Americas, but also other parts of the world. And if the order intake from Asia and especially China was, if not nonexisting but very low in Q1, we have seen that coming back and become slightly stronger than even they normally did so far in Q2.

Yes, yes. That’s for sure. The first one is, the start of the Oxelösund conversion will be postponed, as you mentioned in your presentation. What does it exactly mean? As you mentioned, the trial plant will be, I believe, on schedule. How do you actually postpone it? Is it just the CapEx you postpone into 2020? And the ramp-up into 2026 is just not affected at all?

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Martin Lindqvist, SSAB AB (publ) – President, CEO & Director [19]

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What we are aiming for and what we are planning for is to have Oxelösund — the new Oxelösund up and running Q1 2026, and we haven’t changed that. We have some slack in the time plan, so we have reduced the initial pace. We are still doing a lot of things, but we have reduced it. So the ambition of producing fossil-free still in Oxelösund in Q1 2026 has not changed then. And the pilot plant is ready this summer or second half of the summer, so that will be up and running. We have already today also in the production system 2 electric arc furnaces. So what we will do, we will start to do trials both in the pilot electric arc furnace we have up in Luleå, but also start to do pilots in and testing in North America. So we haven’t changed the overall time schedule, but we are delaying some investments due — to preserve cash, given the situation right now.

Understood. The second question I have is on volumes because you rely heavily on blast furnace operations in Europe, of course. But it looks like the electric arc furnace operations are currently better placed given the scrap market weakness. Do you expect a harder hit on the blast furnace operations volumes versus your electric arc furnace operations in North America?

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Martin Lindqvist, SSAB AB (publ) – President, CEO & Director [21]

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It’s 2 different markets. I mean, if you take flat carbon where we are in the Nordics and mainly in Europe, that is, to a very large extent, if not 100% blast furnace-based. And I think, as of last Friday, I think there were 18 blast furnaces idled in Europe. But of course, with electric arc furnaces, you have much more flexibility. To stop a blast furnace takes some time. And also when you ramp it up again or start it up, it takes a couple of weeks or a week or 2. In an electric arc furnace, you just push the red or the green button. So different markets and different ways of running it.

And then over time, it differs, I mean, between the scrap and iron ore and coking coal. But from time to time, it differs. But over time, the correlation is quite big. So I mean, we are competing with blast furnaces — other blast furnaces in Europe and in North America. We compete with both blast furnaces and electric arc furnaces. But to a large extent, I would say, if you take place, it’s us and Nucor running electric arc furnaces in Americas. The other ones are running blast furnaces.

Just a few follow-ups from my side. Firstly, on the CapEx, just so I understand you correctly, that if you look at the average, call it, CapEx then for the next 5 years, that’s still SEK 3 billion annually plus/minus some SEK 200 million or…

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Martin Lindqvist, SSAB AB (publ) – President, CEO & Director [24]

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Yes. Lower this year 2020. That, of course, remains to be seen where this will go, but that’s what we are planning for right now, yes.

Okay. On the prices, just one thing on the Q1 results there on Europe, where you said that prices were down 7% versus Q4. But if I remember correctly, you guided for somewhat lower prices, which is — so it seems like prices came in much lower than you expected if that is a fair comment. And so — if so, what was that that drove that decline in prices in Q1 in Europe?

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Martin Lindqvist, SSAB AB (publ) – President, CEO & Director [28]

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Do you want to take that, Håkan?

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Håkan Folin, SSAB AB (publ) – Executive VP & CFO [29]

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Okay. Yes. I think it’s a fair comment, Christian. A few reasons. One is we renegotiated both quarterly, half year and annual contracts in Q1 now versus Q4, and that had a quite big impact. Second reason is that we did — given the weak order situation in Q4, we did take a few spot orders that was delivered in Q1, but also drove down the average price level. So in that sense, yes, the price drop was a bit more than the somewhat lower that we guided for, correct.

I have 2 questions, please. My first one is just on the cash needs, which you’ve been singling out. It seems like you still have about SEK 600 million to SEK 700 million in taxes and others. Could you please specify what is basically flowing into this number? Is there still a lag from the taxes of last year, maybe in the U.S., as you’ve been suggesting on the slide? Or why is that portion not even lower?

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Martin Lindqvist, SSAB AB (publ) – President, CEO & Director [34]

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That’s a typical question for you, Håkan.

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Håkan Folin, SSAB AB (publ) – Executive VP & CFO [35]

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Yes. Now Bastian, your own reflection was right. It’s, to a large extent, a consequence of earnings from previous years where we pay the taxes later on, yes. And I mean — sorry, it does depend also, I mean, on the result and how the year develops. So I would say it’s more likely that it will be lower than that it will be higher, yes.

Got it. Okay, okay. And is there already like a benefit, like a tax credit you’re actually receiving, any positive impact, in fact, for the European business? Or is that — is that still negative as well?

Yes. Okay. Understood. And then just on working capital. Could you give us any indication on maybe the potential for working capital release you see this year? Obviously, the business clearly went down. There’s a lot of uncertainty around, I guess, what the demand will do towards the end of this year. I think that’s pretty clear. Yet, I guess, in this environment, there should be at least some scope for you to cut working capital. Maybe could you give us any sort of, say, quantification on what you think you could do maybe as a minimum?

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Håkan Folin, SSAB AB (publ) – Executive VP & CFO [39]

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I think the best way — I mean there are 2 aspects here. One is what we are trying to do structurally in order to become more efficient in our working capital needs, and that we are continue working on despite the current situation then. And then you have the impact from a lower business or slower business environment. I think the best way is to look at previous years, and you can also take Q4 as an example, where we had low demand, we had low deliveries, which then also has an impact on our accounts receivable, as an example.

So it very much depends on how — if you take the full year, it depends so much on the business environment development during the second half of the year, which, as Martin said before, it is much more uncertain than we are used to. So it’s hard to give a quantification. My best advice would be to look at what you expect and then compare with similar situations previously like Q4 last year or like 2015, ’16.

Okay, okay. If you look at the business from an maybe all-in cash basis, I mean, would you be as confident to say that you do expect to end the year even on a lower net debt number? Or do you think that that may be actually a challenge this year, just given what’s, obviously, going on in the operation, obviously, acknowledging that lack of — uncertainty on your earnings for the second half, obviously, is still fairly high?

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Martin Lindqvist, SSAB AB (publ) – President, CEO & Director [43]

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But I think it, of course, depends very much on where the business will go with the rest of the year. But structurally, as Håkan pointed out, there are more things to do when it comes to cash flow generation and working capital release. So everything else equal, we should continue to strengthen our balance sheet.

Okay, okay. Then just one more question on the business. Have you been noting any sort of market share changes in the past couple of weeks, maybe from the different disruptions? Anything interesting which you’ve been noting maybe in the European or the U.S. market?

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Martin Lindqvist, SSAB AB (publ) – President, CEO & Director [45]

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No, not really. I mean, we have stable and fairly high market share in North America. We have that in the Nordic region as well. So no big swings, no, no.

And have you been maybe receiving any request from customers maybe solicitating maybe some volumes, maybe which we are not doing that much business with usually? Or…

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Martin Lindqvist, SSAB AB (publ) – President, CEO & Director [47]

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There have been some smaller examples of that, yes.

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Operator [48]

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And your next question comes from the line of Anssi Kiviniemi.

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Anssi Kiviniemi, SEB, Research Division – Analyst [49]

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It’s Anssi from SEB. First of all, starting with the guidance. You guide for shipments to contract sharply in Europe and Americas. So I mean, you can see your order books and business momentum, but we cannot see that. So kind of what should be a good starting point for us to think about the Q2 lower deliveries in Americas and in Europe and also perhaps in Special Steels?

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Martin Lindqvist, SSAB AB (publ) – President, CEO & Director [50]

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No. But, I mean, with the Automotive, to a large extent, standing still and also Heavy Transport big consumers of steel, of course, their order intake has gone down and the volumes will be lower. So that’s what the steel industry in general see. And also, with the partial lockdown or what do you call it in North America volumes are — and the oil price volumes are lower. I think, in relative terms, we might — with the market penetration we have and the products we have, we should be okay. But we clearly see in Q2, due to the ongoing COVID outbreak, lower volumes, and that’s what we are guiding for.

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Anssi Kiviniemi, SEB, Research Division – Analyst [51]

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Okay. Kind of, could you elaborate a bit on, is it 10%, 20%, 30%? What is the kind of right ballpark?

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Martin Lindqvist, SSAB AB (publ) – President, CEO & Director [52]

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We haven’t filled up, I mean, Q2 fully yet, so we haven’t — but it will go down. We haven’t said in absolute percentage how much it will be, but we have said that what we see now is that it will go down less in Special Steels compared to the more standardized business versus — which is fairly typical.

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Anssi Kiviniemi, SEB, Research Division – Analyst [53]

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Okay. Then on SSAB Europe and Q1, I mean, there was a threat of industrial strikes in Finland, probably some postponements of the impacts also coming from Q4. Were there some kind of extra costs during Q1? Because when I look at the margin, it was a little bit on the soft side.

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Martin Lindqvist, SSAB AB (publ) – President, CEO & Director [54]

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It was — I mean, as Håkan mentioned, we had — prices were down slightly more than maybe than we guided for. So it was a margin squeeze and continued margin squeeze in Q1. And then we took some spot orders, as Håkan mentioned, end of Q4 that were delivered in Q1. But overall, if you take fixed costs or SG&A, there were not any major, major cost effects of strikes and so on in Q1. Some spillover from Q4, but not any major costs.

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Anssi Kiviniemi, SEB, Research Division – Analyst [55]

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Okay. That’s clear. Then the last question, working capital when we are going now into Q2. Lower deliveries — usually, Q2 is slightly negative on working capital side. Now it should be well on the positive side, right?

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Martin Lindqvist, SSAB AB (publ) – President, CEO & Director [56]

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We shouldn’t — you shouldn’t expect us to continue to build working capital, no.

Ola Soedermark, Kepler Cheuvreux. A follow-up on the previous question about the volumes for coming quarter. I know that great uncertainty and so on. But you highlighted that in previous crisis, the volumes have been down by 20% to 40% in the worst hit quarters. And you’re also taking down rolling capacity in Europe by 25%. Is it fair to assume that volumes are going down by 20% to 30% in the second quarter, if one is excluding Special Steels?

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Martin Lindqvist, SSAB AB (publ) – President, CEO & Director [59]

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We haven’t been so explicit. But we have closed 1 of the blast furnaces, and we are taking down rolling production more than 25%. So yes, it will — we are expecting, I mean, different capacity utilization or much lower capacity utilization in Q2 compared to Q1, that’s for sure.

And when it comes to maintenance outage and we are bringing forward the maintenance stops, do you see any bottlenecks there? Or do you see any problems to carry out the maintenance stops when it comes to spare parts or expertise that maybe has to be flown — flying in?

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Martin Lindqvist, SSAB AB (publ) – President, CEO & Director [61]

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We have — we started to prepare that already in March and started to discuss with suppliers and so on. So we don’t expect any major problems, then we wouldn’t have moved it. So we felt it was a good time to do it during the summer, for the reasons Håkan mentioned, because we don’t really need full production capacity, and we can save money on temporary employees and summer workers and so on. So no, we don’t — we expect to be able to run or to do the annual maintenance according to what we have planned and communicated. So no major problems that we see right now.

My most questions have already been asked. If I can ask a longer-term question on Tibnor and you have guided for SEK 200 million worth of sales coming in from second half onwards. Is there any effect on potential savings being realized in this current environment?

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Martin Lindqvist, SSAB AB (publ) – President, CEO & Director [64]

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But what we have said, I mean, the structural changes and savings in Tibnor, they are according to plan. And then, of course, they are also on top of that part of the overall saving program. So they have their part in that as well on top of the SEK 200 million, and the SEK 200 million are — will be — start to be more visible in Q2, but they are according to plan or even slightly ahead of plan.

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Operator [65]

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And your next question comes from the line of Viktor Trollsten.

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Viktor Trollsten, DNB Markets, Research Division – Analyst [66]

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Yes. So first of all, I would just like to ask you on the strategic CapEx in Mobile that you are now delaying, is that changing how you view the, let’s say, ramp-up profile for the strategic targets in Special Steels, let’s say, for 2021? Will production be more back-end loaded now versus before?

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Martin Lindqvist, SSAB AB (publ) – President, CEO & Director [67]

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No. But, I mean, delaying something always means, I mean, delaying in time as well. But I think it’s a good way to do it, first of all, in order to focus on preserving cash, but also the possibilities to have — I mean, first of all, we don’t want to have too many external contractors on the site right now. And it’s also a matter of, I mean, the ongoing COVID-19 outbreak and how we handle the production and how we handle our own people. So we don’t want to have a lot of contractors running around, if you understand what I mean, at the site either. So it’s a combination.

But — and we don’t — we expect, as I said during my presentation, we expect to meet our strategic targets for 2022 anyway. And — but this is a combination of preserving cash, being cash cautious, but also taking care of our employees and make sure that we do everything we can to avoid a big outbreak at one of our plants.

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Viktor Trollsten, DNB Markets, Research Division – Analyst [68]

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Okay. Fair enough. And then also, maybe you could comment a bit on what you have heard from your customers in the last couple of weeks. Because at least what I can see and from my perspective, we have seen production open up in certain sectors. Is that something that you haven’t seen yet? And is that included in your guidance for Q2?

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Martin Lindqvist, SSAB AB (publ) – President, CEO & Director [69]

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As I said, it remains to be seen in what pace they open up and so on. But what we have seen is that in Asia, as an example, and especially China, the order intake in Q1 was, if not nonexisting, but at very low levels. And that has changed, at least for the time being, as we see stronger, in relative terms, order intake from there from very low levels. And then what happens when the Automotive industry opens up and Heavy Transport and so on and at what pace they’re opening up remains to be seen. But what we are guiding from is the order book we have right now and the order intake we have seen in the last weeks or the last month.

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Viktor Trollsten, DNB Markets, Research Division – Analyst [70]

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Okay, okay. Now that’s clear. And just finally, on my side, in terms of pellet premiums, I’m just curious if you could comment somewhat on that because you had positive effects from variable cost in the quarter. Is the full impact from pellet premiums, is that coming in this quarter? Or could we have some more impact in the quarters to come? And is that also a relative benefit or a relative negative for you versus other steelmakers?

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Martin Lindqvist, SSAB AB (publ) – President, CEO & Director [71]

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If I take the second part of the question, and Håkan can take the first one. I mean it differs over time. But typically, what you see when volumes are lower, you see other steel companies using more fines than pellets, and we are not able to use fines because we don’t have any sinter plants. So we are always using 100% pellets, and that can differ. If you take some of the European players, they can use both fines and run their own sinter plants or use pellets. And typically, what you see in a tougher market situation that they usually use more fines. So that — I mean the advantage or disadvantage depends on if the pellets — if iron ore prices go down but the pellet premium is more stable, then we can have a short-term disadvantage. Håkan?

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Håkan Folin, SSAB AB (publ) – Executive VP & CFO [72]

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Yes. On the first part of the question, we had — our purchase prices for iron ore, which includes the pellet premium were more or less unchanged in Q1 versus Q4. And for iron ore, it takes around half a quarter up to a quarter until we see the impact from when we buy it in the P&L and half a quarter is maybe for Luleå, where we have very little iron ore stock and we get daily deliveries from LKAB and then longer in Raahe and Oxelösund.

But given that our purchase prices were unchanged in Q1 versus Q4, unless there’s big movements in Q2, our P&L cost for iron ore will, more or less, be unchanged in Q2 compared to Q1.

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Viktor Trollsten, DNB Markets, Research Division – Analyst [73]

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Okay. That’s very clear. Just a quick follow-up on the pellet premium. It sounds like if other steelmakers go for fines rather than pellet, I suppose, in a downturn, the pellet premium should come down if demand is lower. Or am I thinking about it wrong?

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Martin Lindqvist, SSAB AB (publ) – President, CEO & Director [74]

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No, it should. It should. But then there is always a lag. And short term, it can differ a bit. But all the time, yes, you’re completely right.

Gustaf Schwerin, Handelsbanken here. Sorry if this has already been answered. I had some issues connecting earlier. Two questions. I’ll start with the first one. I mean, I understand that there’s a lot of uncertainty at this point. But if you compare the slowdown in your European-U. S. order books that from the last weeks comparing to the financial crisis, I mean, what is the feeling? If I remember correctly, I think you had 1 month (inaudible) orders in Europe but…

Okay. Sorry. I’ll take it again, sorry. No, so I mentioned, I mean, it’s understandable what you say about our uncertainty at the moment, but just this last week, if you compare the slowdown in your order books versus the financial crisis, I mean, what is your (inaudible) at least? I believe you have 1 month back in the financial crisis for the European orders, of course, but that would be for a whole month…

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Martin Lindqvist, SSAB AB (publ) – President, CEO & Director [85]

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Sorry, but I couldn’t really hear that question. Could you hear it, Håkan? If you want to take it, I couldn’t hear.

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Håkan Folin, SSAB AB (publ) – Executive VP & CFO [86]

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I think the question was comparison between the situation now and the financial crisis 2008, 2009.

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Per Hillström, SSAB AB (publ) – Head of IR [87]

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In the trend in orders, how quickly it deteriorates, right, Gustaf?

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Håkan Folin, SSAB AB (publ) – Executive VP & CFO [88]

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And now we lost him.

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Per Hillström, SSAB AB (publ) – Head of IR [89]

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Yes, we can maybe take the next question.

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Martin Lindqvist, SSAB AB (publ) – President, CEO & Director [90]

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Yes. We take it if he comes back.

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Operator [91]

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Yes. At the moment, sir, we have no further questions that came through. (Operator Instructions).

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Per Hillström, SSAB AB (publ) – Head of IR [92]

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Yes — and in the meanwhile, we can take a question here that’s come in from [Olivia] at Bank of America Merrill Lynch.

And the first one is, what is the state funding for labor in Sweden and Finland? I guess, she means what is the support the employees can get for — when they are temporary off, laid off.

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Martin Lindqvist, SSAB AB (publ) – President, CEO & Director [93]

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And that system differs somewhat between Sweden and Finland. But there is — both in Sweden and Finland, the state or the government is taking part of the cost. And if you, in Sweden, reduce working time with up to 80%, the cost or the negative effect for the employee is a little bit less than 10%. And for the company — or the state takes for this right now a fairly decent portion of that cost from the companies. I don’t have the exact figures, but we are following, as I said, the local rules in every country where we are active. And it differs somewhat between Sweden and Finland. It differs also among other countries.

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Per Hillström, SSAB AB (publ) – Head of IR [94]

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Yes. And I think the second question here, you have been commenting on that, but maybe just to repeat the order book situation across the businesses, I mean, for the 3 steel divisions, just shortly, how it looks.

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Martin Lindqvist, SSAB AB (publ) – President, CEO & Director [95]

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No, but we see a bigger impact of the more — on the more standardized products, so to say, and less of an impact in the more specialized products like quenched and tempered and Special Steels. So — but that is what we also typically see over business cycle and that’s what we see this time as well. So less impact in Special Steels and more impact on more standardized products in Europe and in Americas.

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Per Hillström, SSAB AB (publ) – Head of IR [96]

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Yes. And then please, operator, you can maybe repeat instruction in case we have any follow-ups from the phone lines.

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Operator [97]

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(Operator Instructions) And we have a question that came through, sir. The question comes from the line of Viktor Trollsten.

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Viktor Trollsten, DNB Markets, Research Division – Analyst [98]

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Just a follow-up. Could you maybe remind us, for Q2, how much of that is already in the order books? And how much is on spot, so to speak? How much do you already have in the order books?

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Martin Lindqvist, SSAB AB (publ) – President, CEO & Director [99]

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We have SEK 8 billion, I would say, to a large extent, May, in our order book. So the visibility is fairly decent for Q2.

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Operator [100]

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(Operator Instructions) Seems like no further questions have came through, sir. You may continue.

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Per Hillström, SSAB AB (publ) – Head of IR [101]

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Okay. Thank you. But by that, we thank you for the attention, and we wish you a pleasant day. So thank you very much from SSAB.

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Martin Lindqvist, SSAB AB (publ) – President, CEO & Director [102]

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Thank you. Bye-bye.

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Håkan Folin, SSAB AB (publ) – Executive VP & CFO [103]

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Thank you very much.

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Operator [104]

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Thank you. That concludes our conference for today. Thank you all for participating. You may now disconnect. Speakers, please stand by.